When handling property agreements, it’s crucial to distinguish between a lease and a licence. Although these terms might appear similar, they carry different legal implications and practical uses. Understanding these differences is essential for property owners and tenants to take well-informed choices. Let’s delve into the main features and practical considerations of leases and licences to help you navigate these agreements effectively.
See also: What happens to a lease if the property is sold?
What is a lease agreement?
A lease, regulated by the Transfer of Property Act of 1882, entails transferring the right to use an immovable property for a designated period. The tenant (lessee) compensates the landlord (lessor) for this privilege.
Lease agreement: Key features
A lease agreement provides the tenant with specific rights and obligations. Here are its key features.
Transfer of right to use property
The lease agreement transfers the right to use and enjoy the property from the landlord (lessor) to the tenant (lessee). This allows the tenant to use the property as specified in the lease.
Consideration
The tenant provides consideration in exchange for the right to use the property, which can be in the form of services, payments, or other valuable items. The lease agreement details the amount and frequency of these payments.
Duration
The lease specifies a duration, which can be perpetual or fixed, clearly stating the length of time the tenant can use the property.
Tenant’s responsibilities and rights
The tenant has certain responsibilities and rights under the lease agreement. They have the right to use the property according to the lease terms and must follow the rules, such as maintaining the property and paying rent on time.
Termination
The lease outlines the conditions under which either party can terminate the agreement, including any fees for early termination and required notice periods.
Maintenance
The lease agreement often specifies who is responsible for repairs and maintenance. Typically, the landlord handles major repairs, while the tenant takes care of minor maintenance.
Security deposit
The agreement specifies the amount of the security deposit and the conditions for its return to the tenant at the end of the lease term.
Renewal
The lease may include terms for renewal, detailing how the lease can be extended beyond the original term, including any changes in terms or rent.
Restrictions
The lease agreement might outline restrictions or bans on specific activities, such as altering the property, subletting or keeping pets.
See also: Leasehold Property: Everything you Need to Know
Lease agreement: Example
Nikhil Sethi owns a house and decides to rent it out. He and the tenant, Simran Sharma, come to an agreement and sign a lease. According to the lease, Simran will reside in the house for two years and pay monthly rent to Nikhil. During this period, Simran can use the house as her own, provided she adheres to the terms of the lease. After the two-year term, the lease ends, and Nikhil regains full control of the property.
What is a licence agreement?
A licence, as defined by the Indian Easement Act of 1882, grants permission for specific activities on another’s property that would otherwise be unlawful.
Licence agreement: Key features
A licence agreement grants permission to use a property without transferring ownership. Here are its key features.
Permission to use property
Grants the licensee permission to perform specific acts on the property, such as hosting an event or conducting business.
Grantor’s control and rights
The grantor retains full control and can set terms, conditions, and revoke the licence, usually with notice.
No transfer of interest or possession
Unlike a lease, it does not transfer any interest or ownership. The licensee’s legal rights are limited to what the licence permits.
Licensee’s limitations and rights
The licensee can use the property as specified but cannot alter or use it in ways not covered by the agreement.
Temporary nature
Typically granted for a temporary period, ending when the specified duration expires, or the purpose is fulfilled.
Revocability
The grantor can revoke the licence at any time, often with notice, providing less security than a lease.
Non-transferable
The licence is specific to the licensee and cannot be assigned or inherited.
No exclusive possession
The licensee does not have sole possession; the grantor may access and use the property as long as it doesn’t interfere with the licensee’s rights.
Licence agreement: Example
Sunil Mishra owns a piece of land and permits Vishal Tiwari to use it for a temporary event, such as a fair, lasting one week. They sign a licence agreement detailing the terms. Vishal Tiwari can utilise the land for the event but holds no ownership or long-term rights. Sunil Mishra retains the authority to revoke the licence if Vishal Tiwari fails to adhere to the agreed-upon terms.
Difference between lease and licence
| Parameter | Licence | Lease |
| Rights | It does not transfer any interest or ownership. The licensee’s legal rights are limited to what the licence permits. | Transfers interest and possession to the tenant. The tenant has exclusive rights to use and enjoy the property. |
| Transferability | It cannot be transferred or inherited. The licensee’s rights are personal and end with their departure or death | Can be transferred to another party and can be inherited. The tenant’s rights remain intact even if the property changes hands. |
| Revocability | Licensees can be revoked at the grantor’s discretion, often with notice. They have less security than tenants under a lease. | Cannot be revoked unilaterally by the landlord unless specified in the agreement. The tenant has security of tenure for the lease term. |
| Impact of property sale | Terminates upon the sale of the property. The licence agreement does not bind the new owner. | Remains unaffected by the sale of the property. The new owner is required to respect the current lease agreement. |
| Legal protection and defence | The licensee cannot defend possession in their own name. The licensee has limited legal protections compared to a tenant. | The tenant has the right to defend possession of the property. Legal protections ensure the tenant’s continued use and enjoyment of the property. |
Lease vs licence: Which is better?
The better choice between lease and licence can differ between property owners and property users. Property owners often prefer licences because they retain more control over the property. They can set specific terms and conditions for its use and can revoke the licence if necessary. Licences allow for easier revocation. If the licensee does not adhere to the terms, the owner can revoke the permission relatively easily, usually with a notice period.
Property users typically prefer leases because they provide more stability. A lease grants them the right to use the property for a specified period, offering security and predictability. Leases offer better legal protection. The lessee has the right to defend possession and enjoy the property without interference, making leases a more secure option for long-term investments.
Housing.com POV
Understanding the difference between a lease and a licence is crucial for property owners and users alike. While both agreements involve the use of property, they carry distinct legal implications and practical considerations. A lease transfers the right to use an immovable property for a specified period, providing tenants with exclusive rights and obligations. On the other hand, a licence grants permission for specific activities on another’s property without transferring ownership. Ultimately, the choice between a lease and a licence depends on the specific needs and preferences of property owners and users. Both agreements have their advantages and disadvantages, and careful consideration of these factors is essential for making informed decisions in property transactions.
FAQs
What is the difference between a lease and a licence?
A lease involves the transfer of the right to use a property for a specified period, granting exclusive rights to the tenant. In contrast, a licence grants permission for specific activities on another's property without transferring ownership.
How long does a lease last?
The duration of a lease can vary and is typically specified in the lease agreement. It can be for a fixed period, such as one year, or perpetual, providing long-term stability to tenants.
Can a lease or licence be terminated early?
The conditions for early termination vary depending on the terms outlined in the agreement. Generally, leases have specific termination conditions, including notice periods and any associated fees. Licences, on the other hand, can often be revoked at the discretion of the grantor, typically with notice.
What are the rights and responsibilities of a tenant under a lease?
Tenants under a lease have the right to use the property according to the terms specified in the agreement. They are responsible for paying rent on time, maintaining the property, and adhering to any rules outlined in the lease.
What legal protections do tenants have under a lease?
Tenants under a lease have legal protections that ensure their continued use and enjoyment of the property. These protections may include the right to defend possession, legal recourse in case of disputes and safeguards against unjust eviction.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
